Japan to take significant step toward closer economic ties with Libya

Feb 22, 2002 01:00 AM

In a move that will please domestic businesses struggling amid a deep recession but could rub the United States the
wrong way, Japan is working behind the scenes to take a significant policy step toward closer economic ties with
Libya. Government sources said that Japan will unfreeze its application of a state-run trade and investment insurance
scheme for domestic firms doing business with the North African country as early as this spring.
Japan has already moved toward warmer economic relations with Libya. In response to the United Nations' suspension of
economic and diplomatic sanctions against Libya in April 1999, Japan quickly lifted its own sanctions. But the trade
and insurance package has remained frozen because Tripoli is an estimated 600 mm yen in arrears on official debt
repayments as a result of payouts on previous investment insurance coverage.

The sources said, however, that the two countries have been in full-scale negotiations on the debt issue since
earlier this year and thata resolution is likely as early as spring. A formal decision on resuming the trade and
investment insurance coverage will be made after the arrears are repaid, the sources said.
"We are now negotiating the terms of the arrears repayment, including an exact amount of arrears and a foreign
currency in which the arrears will be repaid," one government source said. The trade and investment insurance scheme
is a key government tool for encouraging risk-averse domestic companies to trade with and invest in developing
economies.
The scheme is structured so the government compensates domestic firms for losses incurred due to civil strife, sudden
changes of economic policies, the bankruptcy of business partners and other unexpected emergencies, then collects its
losses from the governments of developing countries. Japan's plan to resubmit its application for Libyan trade
insurance comes amid growing calls from domestic industries for closer ties with the North African country.

Officials at the Ministry of Economy, Trade and Industry note that Libya is rich in natural resources such as oil and
gas and is promoting new large-scale infrastructure and other projects, including the Great Man-Made River Project, a
national water supply project. Therefore, the country is a "promising market for plant business," the officials point
out. But Japanese companies have lagged behind their counterparts in many European nations, especially those in
Italy, in striking energy-related deals with Libya, due partly to the lack of the trade and investment insurance
coverage.
While domestic companies are expected to welcome the recent government move, it could rile, or at least offend, the
US, Japan's most important ally. Despite the UN suspension of sanctions in April 1999, the US has refused to lift its
own punitive measures, claiming that Libyan leader Muammar Gaddafi continues to support terrorism and pursue a
chemical weapons-development program. Last August, the administration of Republican President George W. Bush extended
the Iran-Libya Sanctions Act.

Even before the UN sanctions were imposed in 1992, Japan did not provide any type of official development assistance
to Libya, partly because the country's per capita income is relatively high and partly out of political consideration
to the US Japanese ODA extended directly to developing countries consists of official yen loans, grants-in-aid and
technical cooperation.
Japan recognized Libya in 1957 and opened its embassy in Tripoli in 1973. But bilateral political and economic
relations soured when Japan joined the UN-mandated sanctions against Libya in 1992. The UN sanctions were imposed in
connection with the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, which killed 270 people.

But in April 1999, the UN Security Council suspended economic and diplomatic penalties after Libya surrendered two
suspects in the bombing case. The two Libyan suspects -- both former Libyan intelligence agents -- were extradited to
The Netherlands for trial under Scottish law.
Taking a cue from the UN, Tokyo lifted its own sanctions against Tripoli immediately and upgraded its diplomatic
mission in Tripoli to the ambassadorial level, from charge d'affaires, at the end of 1999. An exchange of visits by
high-level officials has also grown active.
In February 2000, Mahmud Zlitini, then the Libyan economy and trade minister, came to Tokyo. In September 2000,
Kiyohiro Araki, then state secretary for foreign affairs, became the first ministerial-level Japanese official to
visit Tripoli since the UN slapped its sanctions on Libya.

In June 2001, Saadi Gaddafi, president of the Libyan Football Association and the son of Libyan leader Gaddafi, came
to Tokyo at the invitation of the Japanese government and the Japan Football Association. He met with many government
officials, including Takeo Hiranuma, minister of economy, trade and industry.
According to the government sources, Japan pressed Saadi Gaddafi to pay back the estimated 600 mm yen as soon as
possible; he replied that he would do his best to move his government in that direction. Full-scale negotiations
between the two countries on the debt issue began several months later.

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